Ladies and gentlemen, thank you for standing by, and welcome to the first quarter fiscal 2018 earnings conference call. [Operator Instructions] As a reminder, this conference is being recorded on Wednesday, September 20, 2017. I would now like to turn the conference over to Jeff Siemon, Vice President of Investor Relations. Please go ahead, sir.

Thanks, Sarah, and good morning to everyone. I'm here with Jeff Harmening, our CEO; and Don Mulligan, our CFO, who will share a few remarks in a moment. Before I turn the call over to them, let me cover our usual housekeeping items. A press release on first quarter results was issued over the wire services earlier this morning. And you can find this release and a copy of the slides that supplement this morning's remarks on our Investor Relations website. I'll remind you that our remarks this morning will include forward-looking statements that are based on management's current views and assumptions. And the third slide in today's presentation lists factors that could cause our future results to be different than our current estimates. And with that, I'll turn you over to my colleagues, beginning with Don.

All right. Thanks, Jeff, and good morning, everyone. Thank you for joining us today to discuss our first quarter fiscal 2018 results. As we mentioned at our Investor Day in July, our #1 priority in fiscal 2018 is improving our top line performance by focusing on 4 global growth priorities: growing cereal globally, including CPW; improving U.S. Yogurt through innovation; investing in differential growth opportunities; and managing our Foundation brands with the appropriate investment. As Jeff will share in a moment, we executed well against these priorities in the first quarter, and we're seeing the results in our in-market performance. In the U.S., our Nielsen-measured retail sales trends improved by 300 basis points versus our fourth quarter results. And we saw good improvement in France and the U.K. as well. We anticipated a slow start to the year on adjusted operating profit and adjusted diluted EPS, driven by sales declines and the phasing of input costs, expenses and cost savings. We expect sales results to strengthen and first quarter margin headwinds to lessen in the remainder of the year, driving growth on profit and EPS in the second half. We continue to maintain a disciplined focus on cash. And we delivered strong growth in free cash flow in the first quarter. And I'm pleased to announce that we've reaffirmed our full year fiscal 2018 targets in this morning's release. Let me review our performance in the quarter. Slide 5 summarizes first quarter fiscal '18 financial results. Net sales totaled $3.8 billion, down 4% as reported. Organic net sales also declined 4%. Total segment operating profit totaled $664 million, down 16% on a constant currency basis. Net earnings decreased 1% to $405 million and diluted earnings per share increased 3% to $0.69 as reported. Adjusted diluted EPS, which excludes certain items affecting comparability, was $0.71. Constant currency adjusted diluted EPS decreased 9%, reflecting lower operating profit, partially offset by lower interest, tax rate and average diluted shares outstanding. Slide 6 shows the components of total company net sales growth. Organic net sales declined 4% in the quarter, driven by lower organic pound volume in the North America Retail in Asia and Latin America segments. Organic sales mix and price realization was neutral in the quarter. Neither foreign currency translation nor the impact of divestitures had a material impact on net sales. In North America Retail, organic net sales were down 5%. U.S. Yogurt represents more than half of the segment's net sales decline in the quarter, driven by continued significant declines in Greek and Light varieties, partially offset by excellent performance on Oui by Yoplait, which launched in July. U.S. cereal net sales were down 7%, reflecting a reduction in customer inventory levels and unfavorable trade expense phasing. Retail sales results for cereal were much stronger with Nielsen-measured takeaway down just 1% in the quarter. The 2% net sales decline in U.S. snacks was due to Fiber One snack bars, partially offset by growth on LÄRABAR, Annie's and Nature Valley. Canada net sales were also down 2%. And U.S. Meals & Baking net sales were flat to last year, driven by strong customer orders on Progresso soup leading into soup season as well as growth on Old El Paso and Totino's, offset by declines in Pillsbury refrigerated dough. First quarter segment operating profit declined 15% in constant currency due primarily to lower volume, unfavorable trade expense phasing, higher input cost and a 6% increase in advertising and media expense. I'll share more color on first quarter profit drivers and our expectations for the full year profit margin improvement in a moment. In our Convenience Stores and Foodservice segment, first quarter organic net sales were flat compared to last year. Growth on cereal and foodservice channel and our new premium sandwich breads in K-12 schools was offset by declines in cup yogurt and biscuits. Segment operating profit was down 8%, driven by higher input cost, unfavorable mix and a comparison against the year-ago period when profit was up 16%. Organic net sales for our Europe and Australia segment were up 2% with good growth in our ice cream and snacks businesses. We continue to expand Häagen-Dazs in Australia and European markets. And our stick bar, pint and mini cup innovation is gaining traction. Snack bars benefited from strong performance on our Fiber One and Nature Valley brands as we continued to increase household penetration behind effective messaging and innovation. Segment operating profit was down $13 million in Europe and Australia, driven by significant raw material inflation, especially dairy and vanilla, which impact both Häagen-Dazs and Yoplait as well as currency-driven inflation on products imported into the U.K. Our Asia and Latin America segment posted an 8% decline in organic net sales in the first quarter, reflecting the timing shift in Brazil's reporting calendar last year and challenges related to an enterprise reporting system implementation, which also impacted Brazil's results. On a positive note, we posted high single-digit growth in local currency on Wanchai Ferry in China. And we recently expanded our Yoplait China business into 4 additional cities near Shanghai, which will drive incremental growth for the brand this year. Segment operating profit in Asia and Latin America was $16 million compared to $22 million a year ago, reflecting lower sales and currency-driven inflation on imported products. First quarter adjusted gross margin decreased 230 basis points and adjusted operating profit margin was down 210 basis points, driven by volume deleverage, higher input cost, including currency-driven inflation on imported products, and unfavorable trade expense phasing. We expect each of these margin drivers to turn more favorable in the remainder of the year. Specifically, we expect our volume performance will improve, driven by increasing benefits from innovation and brand building as well as much stronger performance on key seasonal businesses in the next 2 quarters. Input cost will be less of a headwind as benefits from COGS HMM savings increase and inflation lessens. On trade expense phasing, you'll recall that we were making some substantial changes to our trade plans a year ago, primarily in the U.S. The timing of those changes had a significant impact on how trade expense was phased by quarter, with last year's first quarter seeing the lowest level of trade expense on a cost per case basis. This unfavorable phasing impact will ease over the course of the year. And let me reassure you that our trade pressure in the market was not meaningfully different than last year. In fact, as Jeff will share in a moment, our average price points in the U.S. were actually higher in the first quarter than they were a year ago. With these margin headwinds lessening, we expect adjusted operating profit margin will improve in the second quarter and again in the second half. For the full year, we continue to expect our adjusted operating profit margin will be above fiscal '17 levels. Slide 12 summarizes our joint venture results in the quarter. CPW net sales grew 2% in constant currency due to favorable net price realization and mix. Häagen-Dazs Japan net sales were up 14% in constant currency, driven primarily by volume gains on our core mini cup business. Combined after-tax earnings from joint ventures totaled $24 million, down 1% on a constant currency basis. This was driven by volume growth for CPW, offset by higher product cost for Häagen-Dazs Japan. Slide 13 summarizes other noteworthy income statement items in the quarter. We incurred $19 million in restructuring and project-related charges in the quarter, including $14 million recorded in cost of sales. Corporate unallocated expenses, including certain items affecting comparability, decreased by $17 million in the quarter. Net interest expense was down 2% from the prior year. We continue to expect full year interest expense will be flat to last year. The effective tax rate for the quarter was 30.4% as reported compared to 30.9% a year ago. Excluding items affecting comparability, the tax rate was 30.5%, 90 basis points below last year, driven by benefits from the newly adopted accounting standard on stock-based compensation. We continue to expect our full year tax rate will be in line with last year at approximately 29%. And average diluted shares outstanding declined 4% in the quarter as we benefited from repurchases in fiscal '17 and additional buybacks in the quarter. We continue to expect average diluted shares will be down 1% to 2% for the full year. Turning to the balance sheet. Slide 14 shows that our core working capital decreased 8% versus last year's first quarter as the benefit of our terms extension program more than offset higher accounts receivable and inventory. We still see opportunities for further improvement in payables, which should continue to benefit core working capital in fiscal '18. First quarter operating cash flow totaled $590 million, up nearly 60% over the prior year, driven by further improvements in accounts payable as well as changes in trade and incentive accruals. Capital investments in the quarter totaled $116 million. We continue to expect to convert more than 95% of our full year adjusted after-tax earnings into free cash flow. For the quarter, we returned $843 million to shareholders through dividends and net share repurchases. Turning to Slide 16. You can see our expectations for the remainder of the year. As I mentioned upfront, we're encouraged that our execution against our global growth priorities is improving our retail sales trends. We expect this momentum to transit into fiscal '18 organic net sales results that are better in the second quarter than the first quarter and better in the second half than the first half. Part of that improvement will be due to the fact that we'll be in the zone on promotions during key seasons for soup and refrigerated dough and we'll continue to invest behind compelling media campaigns to strengthen our brands. As I mentioned earlier, we expect to lessen the declines on our adjusted operating profit margin and adjusted diluted EPS in the second quarter and to drive growth on those measures in the second half of the year. So let me close my portion of our remarks by reiterating that we remain on track to deliver the fiscal '18 guidance we outlined in July, namely: We expect organic net sales growth to be down between 1% to 2%, which translates to a 200 to 300 basis point improvement over our fiscal '17 performance; we project total segment operating profit growth to be in the range between flat and up 1% on a constant currency basis with adjusted operating profit margins higher than last year; and we expect adjusted diluted EPS will be up between 1% and 2% in constant currency. The one update to our guidance is that we now estimate foreign currency will have $0.01 favorable impact to full year adjusted diluted EPS. With that, I'll turn it over to Jeff for an update on our fiscal '18 growth priorities.

Thanks, Don, and good morning, everyone. I'd like to start my remarks this morning by summarizing 3 main takeaways from our first quarter results. First, our entire company is showing great focus and urgency in executing against our global growth priorities in the first quarter. And we've started to see those efforts gain traction in the marketplace. I can sense the change in momentum as I talk to employees across our company. Now we still have much work to do to return to growth. But our efforts are beginning to pay off, and we're confident in the direction that we're headed. Second, we're going to build on the momentum that we saw in the first quarter as we approach the second quarter. We'll continue to expand successful innovation, like Oui by Yoplait. We'll increase our brand-building investment behind Häagen-Dazs, Nature Valley and our cereal portfolio. And we will drive significant improvement on our performance on soup and refrigerated dough. And third, as Don mentioned earlier, we have a line of sight to delivering on our full year commitments on sales, earnings and cash generation. Now let's review the results we're seeing in the market so far this year, beginning with the broad overview of the U.S. before covering our global growth priorities in more depth. Our first quarter U.S. sales trends improved by more than 300 basis points over the fourth quarter of last year. Our results strengthened each month in the quarter. And that improvement has continued as we've seen the first couple of weeks of data in September. And the improvement is broad-based. 80% of our U.S. Retail sales are represented in our top 9 categories. And we're seeing stronger Nielsen trends in almost all of them. Our largest business in the U.S., cereal, improved by almost 200 basis points. And we saw nearly 800 basis points improvement in soup. Hot snacks and fruit snacks both accelerated their growth, delivering 3% and 6% retail sales growth in this quarter, respectively. And although the retail sales for our Mexican business slightly slowed in the quarter, they were still up 4%. Importantly, our broad-based improvement, including better volume performance and positive pricing, drove stronger results for the categories in which we compete in the first quarter. Across our U.S. business, pricing in our categories was up 1% in the first quarter and our pricing was up 2%. And we had positive pricing in 11 of our top 12 categories. Our pricing was up for 2 main reasons. First, our innovation and brand-building efforts helped drive a significant improvement in our baseline sales trends, which measures consumers' willingness to pay at full price for our products. Second, our strong sales force execution drove display and merchandising at higher price points in the quarter. More broadly, we made progress against each of our 4 global growth priorities: growing cereal globally, including the CPW joint venture, behind compelling product news, innovation and advertising investment; improving our U.S. Yogurt performance through fundamental innovation; driving differential growth across several global platforms where we have good top line momentum; and investing in our Foundation brands at appropriate levels to ensure we remain competitive, especially in the key seasons. Let me briefly review some highlights across these priorities, starting with cereal. Our first quarter U.S. cereal sales strengthened throughout the quarter and were down less than 0.5% in the month of August. We continue to see the best results on brands that deliver on consumers' evergreen desire for great taste. Lucky Charms posted 16% retail sales growth behind our first quarter marshmallow event, where we gave away 10,000 boxes of Lucky Charms containing only marshmallows. Reese's Puffs grew retail sales 8% through effective messaging and by expanding availability of different pack formats. And Cinnamon Toast Crunch continued its track record of growth with retail sales up 4.5% in the quarter, behind effective taste messaging and merchandising. We're happy with the improvement in our U.S. Retail sales growth in the first quarter, and we expect cereal net sales and cereal retail sales results to be more in line for the remainder of the year. Our Convenience Stores and Foodservice segment delivered low single-digit cereal net sales growth in the quarter. We're seeing strength in our bulk and bowlpack cereals in K-12 schools, lodging, health care and colleges and universities, driven by growth of our granola varieties as well as gluten-free and a "no artificial colors and flavor" news that continues to resonate with foodservice operators and consumers. CPW also posted another quarter of growth behind our Whole Grain Number 1 campaign, which is helping raise awareness of our cereals' wholesome ingredients in markets around the world. Looking ahead to the second quarter. We're excited to announce our next launch in U.S. cereal, Chocolate Peanut Butter Cheerios. Consumers love chocolate and peanut butter flavored cereals. In fact, these 2 flavors combined to generate almost $0.5 billion of U.S. cereal category retail sales, and they're growing. So we're expanding Cheerios, the largest cereal brand in the category, with this new offering. We think this launch is going to be a big hit, so keep an eye out for it in late October at your local grocery store. Also keep an eye out for our seasonal cereal varieties. We're bringing back our successful Pumpkin Spice flavor that we launched last year, and we're expanding our seasonal lineup with Banana Nut Cheerios. Now let's turn to our second global priority: improving U.S. Yogurt through fundamental innovation. I'm pleased to say that our biggest yogurt launch this year, Oui by Yoplait, is off to a great start and exceeding our high expectations. In fact, we're benchmarking our results against the most successful competitive launches in the category in the last 5 years. And through 8 weeks, Oui by Yoplait, is twice as large as the benchmarks. It's still early, but we're seeing very strong trial and the new line already captured more than 1 point of share in the category last month. Oui's success speaks to the power of strong execution, combined with fundamental innovation. We believe this is the recipe needed to return our U.S. Yogurt business to growth. We expect to drive improvement in our U.S. Yogurt business in the second quarter behind increased contributions from innovation, the effective marketing and distribution expansion. On innovation, I just talked about our Oui by Yoplait results. And we're also seeing good performance on our new Yoplait Mix-ins products, which we also launched in July. We think there is distribution upside for both of these new launches. Beyond the second quarter, we'll have more innovation and news on our Go-GURT, Yoplait Original and Annie's lines. We're also supporting our brands with more effective marketing. We're telling families about new, easy opening Go-GURT tubes. And we're starting to see baseline sales improve as that message broadens. And we recently began airing a new Yoplait Mom On campaign on TV and in digital channels that is helping improve our Yoplait Original business performance. Finally, we've secured increased distribution of our organic Liberté line as well Original-style Yoplait products at a few key customers. As a result of these efforts, we expect to significantly reduce our yogurt net sales declines in the second quarter and further improve them in the back half of fiscal 2018. Now let's turn to our differential growth opportunities. Our fiscal '18 plans on Häagen-Dazs call for growth from innovation, geographic expansion and increased media. And we're seeing good results so far. Over the last 12 weeks, this business posted 20% retail sales growth in measured channels across the globe. The U.K., our second-largest ice cream market in retail channels, led the way with 66% growth behind our new mini cups launch, the continued growth of stick bars and our new advertising campaign. And France, our largest retail market, posted 16% growth behind the launch of mini stick bars. And I must admit, an unusually warm summer didn't exactly hurt our European Häagen-Dazs results in the quarter. In the second quarter, we'll continue our rollout of stick bars, mini stick bars and mini cups. We're also launching a number of new mochi flavors this quarter in Asia, including green tea and azuki. And we're drafting off the success we've had with our mochi ice cream and bringing it to moon cakes, which we're launching now for the Mid-Autumn Festival in China. We'll strengthen this innovation news by expanding our brand redesign, which includes new packaging and advertising, into Asia in the second quarter. Our premium ice cream consumers look for a consistent stream of innovation and news, and we feel great about our lineup so far this year. And we'll tell you more about our second half innovation and news on Häagen-Dazs during our second quarter earnings call. LÄRABAR in the U.S., Fiber One in Europe and Nature Valley around the world continue to lead our growth on our global snack bars platform. Nature Valley retail sales were up 8% in the U.S. in the first quarter behind strong innovation and increased media support. Our key launches included Nature Valley Coconut Butter Biscuits, which helped drive 60% growth on our nut butter biscuits line and secured over 2 points of share in the grain category, and Nature Valley XL Protein, which has become one of our biggest launches in our snacks portfolio this year. And both of these launches are benefiting from increased media investment and our new Nature Valley advertising campaign. LÄRABAR continues to deliver excellent growth in the U.S., with retail sales up 33% so far in fiscal 2018, through innovation and media support. Our most recent innovation has included 2 new flavors of the highly incremental LÄRABAR Bites line as well as a new line called LÄRABAR Nut & Seed bars. And our real food messaging continues to increase awareness and penetration of our LÄRABAR products. While we've delivered good growth on Nature Valley and LÄRABAR in the U.S., our Fiber One results in the market have been disappointing with retail sales down more than 20% in the first quarter, driven by distribution declines. We recently introduced a new advertising campaign, which is beginning to have a positive impact. We'll continue supporting this campaign. And we'll bring new product innovation in the second half to improve our momentum on Fiber One. Finally, we're looking to deliver another strong year of growth on snack bars in Europe with our introduction of Nature Valley nut butter biscuits and the continued rollout of Fiber One 90. These efforts are off to a terrific start. Retail sales are up almost 40% in the last 12 weeks. Consumers around the world are increasingly turning to Mexican food to deliver on their desire for convenience, customization and the use of fresh ingredients. As one of the largest Mexican food brands in the world, Old El Paso is well positioned to benefit from these consumer trends. In the first quarter, we generated 4% retail sales growth on Old El Paso in the U.S., while retail sales in Europe and Australia were flat to last year. Looking ahead, we'll strengthen our performance by investing in media, including our Anything Goes campaign in the U.S. and Make it Yours campaign in Europe. We'll also continue to expand our portfolio with new flavors and formats of our Stand 'N Stuff line, including blue corn taco shells and Stand 'N Stuff mini kits. Annie's, our largest Natural & Organic brand, posted 12% retail sales growth in Nielsen-measured outlets in the first quarter. And I already mentioned the outsized growth we continue to deliver on LÄRABAR, our second-largest Natural & Organic brand. Given the size and growth profiles of these 2 businesses, they are driving the majority of our Natural & Organic portfolio's growth. And we think there is room for more. We accelerated LÄRABAR's sales and penetration considerably when we started advertising on TV. So now we're launching our first-ever TV campaign on Annie's. We're keeping our message simple and authentic, in line with the brand essence highlighting the origins of Annie's and why it exists. We began airing this campaign in advance of the back-to-school season, and we're supplementing that support with in-store merchandising. Finally, we're looking forward to expanding our Annie's lineup in the back half with a number of new items in existing categories. Turning to our seasonal businesses. We've talked a lot about getting in the zone on pricing this year. Last year, we missed the mark, particularly on soup and refrigerated dough. So we've taken actions this year to make sure we're more competitive. We're also making investments to bring news and innovation to our Foundation brands. On Pillsbury, we're improving our marketing by launching a terrific new advertising campaign titled [ Made at Home ]. And we're giving consumers more of what they want, more icing on Pillsbury cinnamon rolls. We recently launched a line of organic soups under the Progresso brand. They come in 6 of our most popular recipes, such as chicken noodle, chicken wild rice and tomato basil. And on our desserts line, we're differentiating on shelf with the launch of a more premium version of cakes and cookies, using the brand Betty Crocker Ultimate for a more indulgent line of cookie mixes and Betty's Original for our simple ingredient cake mix line. We're just about to enter a key season for these businesses. And with stronger merchandising and innovation plans in place, we feel much better about our prospects this season. We'll provide an initial read on our progress during our second quarter earnings call. Before I close, I want to quickly touch on our e-commerce results in the quarter. As we shared at Investor Day in July, we're making considerable changes and investments to accelerate our performance in this important emerging channel. We've established a global e-commerce team. We're bringing our leading category management capabilities to bear with our retail partners. And we're leveraging our online intelligence to better serve our consumers as they look for food online. These efforts are beginning to deliver accelerated growth. For example, our e-commerce sales in U.S. Retail were up almost 90% in the first quarter. And we continue to see strong market share performance. In fact, our full basket e-commerce market share was a 140 index to our share in physical stores in the first quarter. That's up from a 120 index in fiscal 2017. With that, let me briefly summarize today's remarks. Though there is still much work to do to get back to growth, we're encouraged by the improvement we saw in our first quarter retail sales trends and the improvement we continue to see as we move into September. We are confident that our retail sales improvement will translate into stronger organic net sales beginning in the second quarter. And this improvement will help generate improved profit and EPS performance as well. And as a result, we remain on track to deliver our full year fiscal '18 targets. With that, let me open the line for questions. Operator, can you please get us started?

[Operator Instructions] And our first question comes from the line of Andrew Lazar from Barclays.

Just first off, I think last quarter, you had talked about expecting positive pricing in the first half of the fiscal year. And even though price was positive in North America Retail in the market, I think as you pointed out, Jeff, in the P&L for North America Retail, pricing, I think, was still down about 2% year-over-year. So I'm trying to get a sense of how much of that was just due to that sort of funky year-over-year trade spend comparison that you noted. And I guess would you expect positive year-over-year pricing maybe as we go into fiscal 2Q in North America Retail segment?

Yes. Andrew, this is Don. We did come into the year, obviously as you mentioned, with the funky trade expense relationship, which I'm happy to go into a bit more as we talk about gross margins. But I think we do -- as you saw in the first quarter, we saw positive pricing in our retail sales in U.S. We had that reverse because of the trade expense phasing in our P&L. So as the year unfolds and as that trade expense unfavorability unwinds, we will see better pricing come through on our P&L, too, more reflective of what you're seeing in the marketplace.

Okay. And then you note, obviously, that had probably a pretty significant impact on the gross margin piece as well. Is there any way to help us quantify a little bit about maybe what impact that had on gross margin?

Sure. Let me maybe talk about gross margin more fully because I'm sure you're not the only one with questions on it. And I guess I'd start with saying that, as Jeff noted in the release and in his remarks, our top line came in as expected. Our bottom line was a little bit short but not materially, not material enough certainly to change our full year expectations. We expected operating profit -- segment operating profit to be down double digits. So the actual results were not materially off of that. And importantly, as I've already said, we continue to hold to our total company SOP guidance for the year with flat to plus 1%, and frankly for each of our segments as well, the guidance we gave in July on margins to be higher in North America C&F and Asia, LatAm still holds, and to be down in EU/AU, driven by the currency-driven inflation on our imported products in the U.K. So both the total company and in each segment, we're holding to the guidance that we provided in July. As we look at the quarter, there were the 3 items that we mentioned: deleverage, the input cost phasing and the trade expense phasing. The volume deleverage was the smallest of those. That was probably 20% of the miss, and then the other 2 were kind of evenly split. But I think the most important thing is as we look forward, we expect improvement in each of those areas. HMM will accelerate as the year unfolds. And that's because we will start to see in the back half, particularly the fourth quarter, the initial benefits of our global sourcing initiative that we began talking about at CAGNY last year. Volume obviously get better as we expect that strong retail sales to flow through into our RNS, our reported sales results. And the year will strengthen, as we have said, throughout Q2. It will be better than Q1. Second half will be better than the first half. And then the trade expense will be lessened as the year unfolds. And in there, we saw higher year-over-year Q1 trade expense. And that was due primarily to North America Retail. And again, this really comes down to accrual accounting. And I have to do a little bit of an accounting detail here because it's an important factor. Trade expense is recognized each quarter based on our estimated annual spending, our actual quarterly shipment volume and estimated quarterly merchandise or promoted cases. It all equals out for the full year, of course. But at times, there can be quarterly variances between in-market spending and the expense on the P&L. Given the actions we were taking in the market last year, Q1 was one of those times. In last year's Q1, as part of our efforts to remove unprofitable trade, we made targeted changes to our back half spending. Those changes impacted what we expensed in Q1, resulting in our reported expense being lower than our in-stores -- than our in-market spending. And that's not the case this year. This year, our in-market spending for the quarter was actually slightly below last year. But due to the expense recognition phasing in F '17, reported trade expense is up in the quarter. And this expense unfavorability will reverse over the course of the year and that will provide margin plus, again, particularly in the back half. And again, while this is very much kind of inside baseball on the accounting side, I think what's important and should be reassuring is our marketplace metrics. Our U.S. average unit price across our categories was up 2%, excluding yogurt. That was 1 point higher than our categories. And that's the more telling side of our merchandising activity in the market. It's also worth noting that we're improving our execution in market and the quality of our merchandising was better in the first quarter with, for example, display up this time versus last year. So there's a number of factors, and as I said going into the year, we had visibility to those. They were baked into our plan. And our visibility to the full year and our confidence on delivering the full year is no different after reporting this quarter than it was when we released guidance in July.

Got it. Okay, I appreciate that detailed answer, Don. I had literally a very quick one just to follow up for Jeff, if I could, and then I'll pass it on. Just, Jeff, I know this is a self-described kind of reinvestment year. It's all geared, right, to getting the top line going again. I guess does the positive EPS growth expected for the full year versus last year, does it handcuff you at all in terms of the sort of investment that you feel like these brands really need, particularly in light of maybe the weaker, albeit expected, the weaker start to the year? And I guess if not, maybe if you'd just go into a little bit why that would be because that is a question that I get a lot.

So the spending profile we have this year and the guidance we've given for EPS really doesn't handcuff us to do the things that we want to do. In fact, one of the things that I see as I look at the first quarter, I'm pleased that the areas where we've invested in marketing spending, so Nature Valley, for example, which is up 8%; Häagen-Dazs ice cream, which retail sales are up 20%; cereal, where we've closed the gap on growth. The areas where we've invested in consumer spending are the ones where we've seen the best results. And I'm really pleased with our marketing efforts and the quality of our marketing in the first quarter. Our execution has been really good. So the short answer, Andrew, no, the guidance we've set out does not handcuff us to do what we need to do to get our business back to growth -- to get the business back to growth. And the key for us is making sure that as we make investments, we're monitoring whether they're working or not. And so far, what we've seen in the marketplace, whether it's the spending on the brands I just talked about or the innovation on Yoplait, are playing out the way that we had anticipated. And we're really pleased with that.

And our next question comes from the line of Ken Goldman with JPMorgan.

Don, one for me. I do appreciate that your total working capital is improving. But your receivables as a percentage of sales have been growing. I think 1Q's level, at least by my model, was the highest in over a decade. And it looks like it's the sixth straight quarter in which this metric has grown year-on-year. There's a lot of concern about retailer versus vendor power and so forth. Can you just walk us through some of the drivers of this receivables trend, how long you think it will last and so forth?

Yes. Well, I think there's 2 things. There's a longer-term trend and a shorter-term trend. The shorter-term trend that we see, actually both in Q4 and Q1, was our sales strengthened as the quarter unfolded. So the exit rate of our sales was stronger than the average for the quarter, which means we had more shipments late in the year -- late in the quarter, so we had more receivables on the balance sheet just from a timing standpoint. Jeff showed you the chart, for example, of the U.S. Retail sales trends and the improvement every month. So that can happen. That's quarter-to-quarter and it just depends on the phasing. The longer-term one is as we continue to see a mix of our business more international that have longer payment cycles both on the receivables and the payable side, that will have, if you will, a mix effect on it. Our payables is -- our receivables, as you look in each market, are very competitive. It really becomes a mix play over time. And we continue to focus on keeping those at the right level. And again, in our working capital, we think the bigger lever is on our payables side.

Okay. So just to be clear, in the U.S. Retail segment, no real meaningful changes to your receivables, except for the one-time timing issue this quarter that you're looking at?

Yes. No, from -- yes, not at all.

Okay, great. And then a quick follow-up for me, Jeff. Obviously, we're talking about e-com a lot more and more these days. With Amazon picking up Whole Foods and Amazon doing what it can, obviously there's a lot of delivery that's growing and the earliest expectations of that. But we're also seeing some food retailers really double down on click and collect. And I'm just wondering from your perspective, is there really any difference in how you would approach the merchandising and the marketing of that? Any difference to the margin? Just trying to get a sense for sort of which of these is better for the vendors, if there's really any difference at all?

Well, so first of all, I appreciate the question on e-commerce. I touched on it because there have been a few things written on e-commerce here in the first quarter. And in July, with investors in the investor meeting, recall that I said, "Look, I like our chances in e-commerce." And I think a few heads kind of looked at me sideways like, "Are you sure?" And what I want to reiterate is that we've seen really good growth in e-commerce, and it's been broad-based. And the question you ask is a good one in that when people think of e-commerce, a lot of times they just think of Amazon. But we have, throughout our customer base, whether it's the likes of Walmart or a Kroger or a lot of our East Coast customers, we have e-commerce sales throughout our customer base. And we're being successful across them. And so whether it's click and collect or whether it's delivery, what you need to know is that when it comes to full basket sales, we feel good about the progress we've made and the shares that we have. In terms of the economics for us on delivery versus click and collect, I'm not going to get deep into it, other than to say that there's not really a difference in the economics for us. And the way we manage our categories across those two is not dramatically different.

And our next question comes from the line of Rob Dickerson from Deutsche Bank.

I have two quick questions. The one is just, I guess, in terms of the retail takeaway we're seeing relative to what you're putting up in organic. And it sounds like what you're saying is that as we get through the year, hopefully, they should start to trend together a bit more closely. But I'm just curious like in terms of the, I guess, what you called out as kind of a near-term cereal inventory reduction at retail. Does that -- is that supposed to bounce back or -- I'm just trying to get a sense as to why exactly, going forward, that we shouldn't see incremental organic sales pressure relative to the retail trend, especially as I think you said in the last results call, it seemed like maybe the mix in Nielsen on a pricing basis wasn't as good or was not as good as what you were getting because you're implying that maybe the retailers themselves were taking a little bit of the pricing pressure. So really just one, why they should trend a bit more closely as we go forward? And the two, I guess, is there any change in that retail pricing dynamic with the retailers?

Rob, thanks for that question. This is Jeff. Let me talk to you broadly about retail inventory and let me then talk more specifically about cereal. If you look at retail inventory for the quarter, there really wasn't a change at all as we look across our U.S. portfolio. So there wasn't -- there was not an impact from -- we call it pipeline. But a retail inventory change, there wasn't one at all. But there are differences between categories. So for example, we actually built inventory in our soup business because as we head into the season, we expect our merchandising to increase. Our retail inventory in cereal actually decreased because, as we said in June, we had a build-up in the prior quarter. The reason why -- but our inventory levels in both cases are reasonable. And so as we look ahead, getting to cereal specifically, our reported net sales were down 7% in the quarter. Nielsen was actually only down 1%. And frankly, if you look at where we did in unmeasured channels, which is about another 1 point, our sales were about flat overall on cereal. So there's about a 7 point gap between reported net sales and what we see organic -- our retail sales to be. Of that gap, about half of it is expense timing that Don talked about, our trade expense timing. And the other half is a change in pipeline and really reversal from what we saw the prior quarter. For these reasons, that's why we're confident as we look ahead on cereal. The gap, cereal specifically, the gap between reported net sales and retail sales will close because we know what that expense phasing looks like. And we know that, that will correct itself over time. And we also know that we don't have an extraordinary level of retail inventory. And so we're in a pretty balanced place. And so we would expect that to even out over time. So we've got a pretty good line of sight to both of those things, which gives us confidence to tell you that we're -- the delta between reported net sales and what we see at retail will close.

And the next question comes from the line of Chris Growe with Stifel.

Just had two questions for you. And the first one would be -- and just to kind of follow up on [indiscernible] you gave earlier in the call, Don, around pricing. So as I understand it, you're going to have a little higher promotional spending year-over-year in Q2 and Q3, especially in some of the seasonal categories. Is pricing in that North American division expected be up or down then? There shouldn't be a phasing issue then going forward the next 3 quarters, it sounds like. Am I right in saying that?

Yes. Well, the trade expense, as it evens out over the course of the year, will actually go from a drag in the first quarter to a plus, particularly a plus in the second half of the year. So that will actually, in terms of our reported sales, will be accretive as the year unfolds. In the marketplace, we will be seeing different dynamics in the second and third quarter on our seasonal businesses than a year ago. So that what you'll see in the marketplace will differ a touch from what you're going to see in our reported sales. But in both cases, certainly in the retail market, we still expect for the full year to be showing neutral to positive pricing.

Okay, that's helpful. And then just a question for you. Overall, there's been a lot of talk and a lot of interest in private label growth currently. We do track that certainly through the IRI database, and I know Nielsen is very similar. But it looks like you've had pretty modest overall private label market share gains in your categories. Do you see any pressure there, any further acceleration? And just curious how you see retailers using that, certainly in your categories.

So Chris, as we look at our categories, the starting point, I would say, is that private label penetration in the categories in which we compete is only about 18% -- or about 10% versus 18% more broadly. So we see lower private label penetration in our categories. What you say really is true in that as we looked over the last 12 months, there have been a couple of categories where we've seen pretty significant growth in private label. But broadly speaking, that hasn't been the case. And those 2 categories, I don't think -- and not consequentially, are in refrigerated dough and in soup, where the fact that we weren't very competitive on merchandising over the last year kind of opened the door. And so as we look at cereal, we don't see a big growth in private label. As we look at yogurt, we don't see a big growth in private label. As we look at bars, we don't see a big growth in private label. And those are areas where we've been more competitive, and we like our innovation and our marketing. And so what I would say is, look, the challenge of private label will be there, in fact internally we call them retail brands. So it's something we take seriously. But your remark is right in that we don't see broad-based growth in private label in our categories, really a couple. And other than that, when we do our job on innovation and marketing and we get our price points right, we're able to compete very effectively with retail brands.

And our next question comes from the line of Jason English with Goldman Sachs.

I want to come back -- not to beat a dead horse, but I want to make come back to make sure I really understand this trade spend accrual. Can you give us some quantification of how much that impact was on your net price for North America this quarter?

So our net price -- Jason, this is Jeff Siemon. Our net price in North America was down 2 points. And I think the trade expense phasing was the full amount of that on rough terms.

That's helpful. So let's say your net price in the segment would have been neutral absent that noise. I think Jeff pointed to retailers -- your price at retail up 2%. Per Rob's question earlier, you mentioned that last year, retailers were effectively subsidizing some of your prices. So your net price wasn't as negative as what we're seeing in retail. It looks like that's slipped. So are you now seeing retailers effectively take margin on you and try to reverse some of that? And if so, is that something we should expect to continue on the forward?

No. Retail margin changes wasn't really a big driver in the quarter for us. I mean, what really -- if you look at retail sales, what drove our positive pricing was a combination of 2 things I talked about. One is our baseline sales outpaced our growth overall. So we saw a 300 basis point improvement in our overall sales. But our everyday sales were up 450 basis points. And the other thing that drove it was we got really good quality merchandising. We had good display merchandising at higher price points. And that's really what drove our pricing improvement over the last quarter. And the reason why you don't see that translate into reported net sales is what Don talked about earlier, which is the trade expense phasing. And so that really is the reason why you see the results that we posted in the first quarter.

Okay, that's helpful. One more question, I'll pass it on. There's clearly been a bit of a disconnect between what your expectations are and what The Street's expectations are as illustrated by results this quarter. Can we help close that gap? So can you give us a little bit more color in terms of what you're expecting for the second quarter? You mentioned sort of sequential improvement. But are we still talking about a down year-on-year quarter? And then for the full year, the path to margin progression, what are your expectations on gross margin for the full year?

Yes. So Jason, as we said at the beginning of the year, our expectation is that we're going to see sales sequentially improve first quarter to second quarter, first half to second half. And we expect profit to be down in the first half and then positive profit growth in the second half. And that's still our expectation. And it's driven -- for the 3 factors I mentioned, that in terms of our margin, the expansion that we're going to get between HMM and inflation is going to be strongest in the second half, particularly the fourth quarter as global sourcing contributes to a greater extent. The sales strength and the volume associated with that will give us less volume deleverage as the year unfolds, and then the trade expense reversal. So we still expect -- and the trade expense reversal, to be clear, is primarily in the back half because, again, last year, as we eliminated the trade, it was really a back half trade elimination. So the comparisons are going to be -- are most acute in a positive sense this year in the back half of the year. So that guidance still holds. We expect our operating profit and our EPS to be down again in Q2 and then turn positive in the second half of the year.

And our next question comes from the line of Michael Lavery with Piper Jaffray.

Just wanted to touch on -- you mentioned as part of your yogurt initiatives, you've gotten expanded distribution on Yoplait Original. Can you give a little more color there? Is that already in place? How significant is that upside? Was -- is it replacing? Is it regaining lost distribution? Or is it purely incremental? Can you just help us understand? That's been a part of the business that's had some pressure, and it sounds like it's not Oui that you're referring to, obviously. So can you just help us understand what's happening there?

Yes. So as we look at our yogurt business, let me go broad picture and then I'll work it down a little bit more on Yoplait Original distribution. Broadly speaking, what we said this year for our yogurt business to get better is that we needed our innovation to work. And we're pleased by that, both on Oui and our yogurt Mix-ins. And we needed to see some improvement in our Yoplait Original and our Go-GURT businesses because -- we needed to see those because we're going to see declines in Yoplait Light and Greek 100. And so we're seeing the declines in Yoplait Light and Greek 100. Our innovation has worked the way we expected. And we're starting to see improvements in our Yoplait Original and our Go-GURT business. The Go-GURT trends have really accelerated dramatically in the last few weeks because we've introduced some new innovation on our existing business, easier-opening tubes with some really good marketing. So we've seen that accelerate faster. And we're now starting to see an impact from distribution growth on Yoplait Original. And that's really only been recently and will accelerate in the second quarter. And so I would anticipate that our distribution on Yoplait Original will improve in the second quarter from where it was in the first quarter, and we should see the results follow. Some of that is going to be replacement of things that weren't as successful. So as we see declines in distribution on Yoplait 100 and on Yoplait Light, it certainly won't be all incremental distribution, but we expect some of it to be incremental because some retailers probably cut back too far on Yoplait Original in the past. So some of it will be incremental, but certainly not all of it. Some of it will be replacing what we've lost in Yoplait Light and Greek 100.

And so is it, on a net basis for your total yogurt portfolio, a reshuffling? Or do you have some of these retailers where you're expecting a net increase in your total shelf space on the yogurt side?

Yes. Our yogurt shelf space now is down from where it was a year ago, and that we expected. But we also expect that, that position will improve throughout the year. And we continue to expect that in everything we see. Based on what we see now in the second quarter and what we anticipate from our new product innovation in the back half, we'd say that our distribution will improve as the year unfolds. Whether it's gets to positive or not, I don't know. But it will improve from where it currently is as the year progresses.

And our next question comes from the line of Matthew Grainger with Morgan Stanley.

This is actually Pam Kaufman on the line for Matt. I was just wondering if you could elaborate on what drove the softer performance in the Focus 6 platforms in the Convenience and Foodservice segment. It seems like there was a moderation there versus what we've seen recently.

Yes, Pam, this is Don. There was a couple of factors. One is that -- just as we've seen, as Jeff was talking about with our U.S. Yogurt business, as we see some of our positions in Light and in Greek, as you've seen those negative trends in the U.S., we're starting to see a little bit of that in our foodservice business as well. We think there's an opportunity to launch Oui and get some presence in Oui in our foodservice segment. And we think that will help reverse it and continue to drive our Parfait Pro business. More importantly, as we look forward, we continue to see terrific performance in our cereal business, and we're going to grow on that. And we actually have seen that as the school year has started. We're getting terrific take on our products, continue to get terrific take on our college and universities. And then most importantly, if you remember last year, we talked about the fact that we didn't really have a good bid season with the K-12 frozen breakfast. We missed some windows. And this year, we were able to get those accounts back. And we obviously started shipping that as the school year started. So we will see that strengthen as the year -- as the second quarter starts. And those are the things that are going to turn the Focus 6. We still expect Focus 6 to be a contributor to sales this year and show sales growth. We think cereal, we think our frozen business, and we think our snacks business in C-store can contribute as well as we get presence with some of the Nature Valley innovation that we've driven in retail, like the cups business. So we still feel good about it. It was a quarter that the sales weren't as strong we'd like, clearly, but it doesn't diminish our expectations for the full year. And frankly, we think we'll start seeing that strength return in Q2.

And our next question comes from the line of Robert Moskow with Crédit Suisse.

I think the major concern that a lot of people have about what's happening at grocery in your categories is breakfast cereal, because we saw the dispute in canned soup affect Campbell quite a bit with one major retailer. And I guess with breakfast cereal consumption down so much, my question is, do you have to do more for the trade to persuade them to maintain shelf space for your items, maintain shelf space for the category? And the discrepancy in the trade spending in the quarter, it just seems to reflect that, like the big difference between your negative 7% on shipments for cereal and the negative 1% in retail. Is there more you're having to do for the trade in this category than your other categories? Or is that just optics?

Well, Rob, look, it's a fair question and I certainly understand it. But it really is just optics. The reason for -- I'm not getting into soup. But for cereal, the fact is that the difference between what you see in reported net sales and what we actually saw in retail was really the 2 things I said, it was the change in retailer inventory and the phasing of trade expense, which does not mean more trade expense or deeper trade expense, it really just is a timing issue. And so look, I understand the concern and I understand the broader narrative. But when it comes to cereal, that really hasn't been the case for us. The results you see and the discrepancy is really as I described. And so while I understand the question, I just want to be clear that we know those things that drove the difference. And we see those -- that gap closing as the year unfolds.

And our next question is from the line of John Baumgartner from Wells Fargo.

Jeff, I'd like to touch on yogurt and snack bars. I mean, you're clearly very active on the innovation front this year. But in more at the category level, those 2 really strike me as having become very over-SKU-ed and the velocities now are also softening. So I'm curious in your view, what gets retailers to begin adjusting these shelf sets, stripping out the underperformers that are dilutive to growth? And how much influence do you have in terms of the category [ captaincy ] to influence that? I'm just trying to think through some of the exogenous factors here going forward.

So let me -- you asked a series of questions. I will try to make sure that I hit all of them. If I don't, please follow up. But when we look at snacks for bars and for yogurt, I mean, they really are driven by innovation and constant innovation and news. And as we look at the yogurt section itself, it has expanded over time. I'm not sure that yogurt is over-SKU-ed. But certainly, it's expanded so much as new innovation comes to the market, I don't think we'll see the same level of expansion in that category and distribution that we have seen. So the key really is to have the best innovation brought to the marketplace. And there probably are some underperforming SKUs that can be taken out, some of which are ours, which I talked about Light and Greek 100. But some are competitors as well. And so that's why it's critical for us that we have good, new product innovation in yogurt as well as good news on our established brands, which we feel like we have now. And we see our retail trend starting to improve, and we expect them to improve more. While we are satisfied that we made progress in the first quarter, we are not satisfied in the absolute, either for our yogurt business or overall. When we get back to growth, then we'll be more satisfied. So when it comes to the snack bars, the bars category is still growing, when you look at nutrition bars and grain bars. And certainly, the key for us is that we have brands that are growing within that Nature Valley, which is the largest in the bars category, and LÄRABAR. And those 2 are providing a significant amount of growth in bars, just those 2 brands alone. And so again, like yogurt, the key for us in bars is making sure we have good, new product innovation as well as terrific marketing on our established brands. And we feel like we have both of those on Nature Valley and LÄRABAR. And we're working to get that on Fiber One.

I think that's all the time we have. Everyone, please, I know we didn't get quite to everybody in the queue, I imagine. So please feel free to give me a ring. I'm on the phone all day today. With that, I think we'll wrap up. Thanks. Thanks, Sarah.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines.